Archives for February 5, 2013

Tonight a New York federal judge, Rakoff, gave monoline Assured Guaranty a huge win. His trial award was near 100 percent of the toxic loans Assured claimed Flagstar Bank had to pay them back. I have been reporting on resi mortgage security putback suits for three years now and this is the first civil suit the market has seen awarded damages after trial.

Assured asked for $93 million in loans to be bought back from the RMBS they insured and Rakoff awarded $89.2 million-Flagstar had already paid a measly few million in putbacks to Assured so that was discounted out of a $90.1mn award. Still to be decided is if the bank that got Assured to insure the toxic rmbs will also have pay their $5 million legal bill and the judge needs to pick an interest rate to be paid. The total damages Assured asked for was $116 million which added in fees and legal bills. In the Flagstar suit the monoline did not try a fraud claim; just a breach of contract claim so that might have helped get the suit through the legal hamster wheel faster.

Wilbur Ross is a major investor in Assured Guaranty and it looks like he picked the right lawyers to fight their case.

“We are thrilled with Judge Rakoff’s landmark ruling in favor of our client Assured Guaranty. This ruling is a significant milestone in forcing the banks to honor the contractual commitments they made and have long sought to avoid. Susman Godfrey was honored by the trust Assured Guaranty placed in us to handle this important case at trial,” said attorney Jacob Buchdahl the legal mastermind behind the win.

This decision should also affect the monoline suits NY State Judge Ramos is ruling over. You know the billions in putback claims first filed by Patterson Belkanp for Ambac, Assured, Syncora against JP Morgan/Bear Stearns. That’s because Ramos said in a recent hearing he wanted to wait to see how Rakoff decied on the use of sampling. This means the monolines don’t have to go and prove loan by loan which ones had faults in them that would have forced the banks to buy them back because their contract said they would.

Judge Rakoff said in his decision it was irrelevant what caused the loans to default. But for monlines suing with a fraud claim it will be relevant.

If you read the transcript from the PBWT hearing we learn Judge Ramos doesn’t really like these suits and isn’t favoring the monoline fraud claims filed by PBWT against JPM/Bear/EMC. Even though they got over 30 whistleblowers to come forward against Bear/JPM and they have all kinds of internal documents now that show the double dipping scheme I first reported on for The Atlantic. Ramos also admitted at the hearing he hadn’t even read through all the docs and evidence PBWT filed ( its kind of absurd he could do that before a motion to dismiss hearing but hey).

Ramos is important because JP Morgan just got him assigned last month as the judge in the NJ AG’s civil rmbs fraud suit against them and that is for over $20 billion in claims.

I’ll be watching to see what my fav legal columnist at Reuters, Alison Frankel, writes on this big legal decision. She is the only other journalist, beside me, who has dutifully kept readers informed about the impact of these mortgage securities fraud suits against the big banks… suits I’ve told Keiser Report viewers will likely cost them billions. JP Morgan just has a hard time admitting it.

Yesterday I reported on a New Canaan hedge fund manager who had a guy arrested for calling him multiple times saying he was a crook for working at Bear Stearns. The headlines were about some kind of harassment going on where the guy was obsessed with Higgins wife – who he use to date. I thought Higgins stalker was a bit off because Higgins actually left Bear Stearns in 2004 so how could he have helped caused their spectacular 2008 downfall. Well I might have been wrong about that.

Today in the DOJ civil fraud suit against the rater, S&P, we learn all about this $500 mn-ish asset backed CDO that was sold to a California credit union and blew up a year after S&P gave it a glowing buy signal. It was called Sorin VI Ltd and issued in March 2007. Well guess who picked the collateral that went into that CDO at the center of the DOJ’s lawsuit – non other than James Higgins firm Sorin Capital Management. And guess who the underwriter was…yep his buddies at Bear Stearns on the resi mortgage desk specifically Mike Neirenberg who ran the Alt-A desk.

Moody’s records show they started taking negative down grades on the toxic CDO Higgins managed in April 2008. His Bear Stearns buddy, Nierenberg, is one of the main traders in my big rmbs fraud story at The Atlantic that was also part of the Frontline Flim The Untouchables. I reported in May 2010 for The Atlantic analysts that worked for Nierenberg were told to make up loan level detail for the raters (like S&P) to get the bonds rated faster. Something that pretty much equals fraud.

Now this story gets even funnier because S&P thought the CDO was so screwed up – while they were rating it – that they even made a little song called ‘Burning down the House’ about it. FTAlphaville has some fun insight on the CDO and the suit today. The California credit union that bought $100mn of the CDO ended up loosing 90 percent of their investment, while Hedgies acting as collateral managers made some nice extra change ‘managing” the CDOs. And as long as they didn’t also own a tranche of the toxic stuff they took care of there wasn’t a lot risk for them.

New Canaan town records show 2008 was the year Higgins bought his huge spanking new mansion at 1480 Ponus Ridge Rd for near $8 million. Then at the end of the year he had to tell his investors his $1.5bn flagship fund was well…negative 36 percent.

Maybe Higgins alleged stalker, Donato Minicozzi, really did know something about how Higgins worked when he called to tell him “Bear Stearns Crook. Notre Dame Sucks. See you at South Beach.” But then this was a guy who threaten the millionaire by saying he’d send pizzas and girls to his house– so he might not be that clever.